Q2 2023 WidePoint Corporation Earnings Call
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Good afternoon, welcome to wide points second quarter 2023 earnings Conference call. My name is John and I will be your operator for today's call joining us for today's presentation are wide points, President and CEO Jin Kang Chief revenue Officer, Jason Holloway, and Chief Financial Officer.
Robert George following their remarks, we will open up the call for questions from wide points publishing analysts and major investors.
If your questions were not taken today and you would like additional information. Please contact wide points Investor relations team at W. Y Y at Gateway Hyphen G. R. P dot com.
Before we begin the call I would like to provide wide <unk> safe Harbor statement that includes cautions regarding forward looking statements made during this call.
The matters discussed in this conference call May include forward looking statements regarding future events and the future performance of wide <unk> Corporation that involve risks and uncertainties that could cause actual results to differ materially from those anticipated.
These risks and uncertainties are described in the company's Form 10-Q filed with the Securities and Exchange Commission.
Finally, I would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at Www Dot wide point Dot com.
Now I would like to turn the call over to wide points, President and CEO . Mr. Jin Kang Sir Please proceed.
Thank you operator, and good afternoon to everyone. Thank you for joining us today to review our financial results for the second quarter ended June 32023 I.
I am pleased to share the Wi point has been executing our strategic plan as we have seen anecdotal evidence of our business steadily improving.
And this has of course been supported by our financial performance being modestly ahead of our internal forecast.
The kicker here is that we've been seeing general improvements within our business, even though we are operating with a leaner team. Following a recent reduction in force initiative.
This has led to our 24th consecutive quarter of positive adjusted EBITDA, which is an accomplishment, we're hoping to continue going forward and a milestone we're proud off.
A big contributing factor to our ability to operate optimally has to do with our team always looking to make systems and processes more efficient.
In parallel with the reduction in force our way of operating efficiently has led wide point in becoming a lean and mean corporate organization.
We're continuing to meet or exceed customer service level agreements and are renewing materially all of our customers that are up for contract renewals and in some cases, even expanding the scope of services we provide.
This is a testament of our robust technological solutions and most certainly the team behind the scenes in particular, we continue to see growth in the mobility and cyber security sectors and remain steadfast in our trusted mobility management solutions.
One intriguing point to note is that businesses are still leveraging the remote working model. It appears that for a good chunk of them. The model is here to stay.
From our vantage point it is quite encouraging as that trend will continue to provide tailwind for wide point and more opportunities for us to capitalize on.
That said there are a flurry of unpredictable macroeconomic trends that could potentially impact our operations first as you all may have heard in the news the federal government is again royal in the budget debate and it's facing possible government shutdown, which could hamper our operations in that sector.
We continue to carefully navigate this environment as we have done for many years and we will continue to mitigate any risks second the labor market is still remains very tight despite many large tech companies executing layoffs.
We are managing the situation, but may see some staffing cost increases as we strive to maintain our key personnel.
We will mitigate this risk by concentrating our sales effort to capture higher margin managed services revenue.
Lastly, supply chain challenges still exist and had been affecting our mobile and accessories fulfillment business with that said the encouraging piece of news is at this challenge has been largely manageable thanks to our team's ability to remain nimble.
Although there is the possibility of the delivery timeline pushing to the right. We are confident that our staff to react swiftly and mitigate those supply chain risks.
Despite these macro variables as you may know, we have remained laser focused on controlling the controllable and a major part of that narrative has been the investments we have been making back into our business.
After the past several quarters are making strategic investments back into our business I am pleased to share that we see the light at the end of the tunnel as we expect a majority of our capital expenditures to conclude by the end of the year one.
One of the bigger programs has of course been our intelligent technology management system or Tms achieving fed ramp in process status were in the latter innings of dealing with the final government entities, which are reviewing our status as we expect this to be completed by the end of the year.
Next our coup site improvements have largely been completed and is in the testing phase.
Furthermore, as we said we would on the last call remote issuance of certificates also known as soft starts along with a remote vetting process has been completed and we will a wide flexibility in modes of certificate issuance that will result in increased higher margin revenues. Additionally, as we also mentioned on the lab.
Last call the development of a hybrid issuance capability, which will allow our clients to retain their personally identifiable information or in.
In their possession has been completed as well.
We are already issuing identity certificates using this new capability.
As a result of some of these investments we've become a stickier solution provider for a number of our pre existing clients.
But we've also won a number of incremental deals from net new customers as well.
I'd like to now hand, the mic over to Jason. So he can talk about some of the activities going on within the sales and marketing front Jason.
Thank you Jan and good afternoon, everyone.
While the execution of our sales and marketing strategy continues as planned.
Want to focus my remarks today on three topics.
First Q2 awards.
As we reported on July 11, and the second quarter of 2023 Y point saw more than 80 contractual actions across our business units, including New awards renewals contract extensions and exercised option periods.
Totally approximately $46 million in contract value.
These wins encompass our managed mobility service.
Analytics and billing as a service <unk>.
Identity and access management.
And information technology as a service solutions.
Second pipeline Q2 saw increased interests from both government and commercial entities and all of our technology management as a service solutions.
We have numerous meaningful new opportunities in the works that we look forward to closing and reporting on in the months ahead.
And third there's a demand for a more secure future as many of you know in the United States. The first half of 2023 was nonstop news headlines about cyber breaches ransomware attacks and cyber crime.
With 2200 cyber attacks per day.
Cyber attack happening every 39 seconds on average and a data breach costing an average of 944 million.
Cyber crime as predicted the cost eight trillion in the United States by the end of the year and this is not to even mentioned the threat to human security and lives posed by cyber attacks and identity and access management failure.
New solutions and partnerships are needed to more effectively guard against this ever changing threat landscape.
I am also proud and excited to share that building on our K through 12 pilot projects and a wide points experience and expertise.
Our team is now working with government and industry partners to develop and deploy a more secure offering based on our pioneering PKI solution.
The shift to public and private sector enterprises to adopt new secure solutions and a monumental effort.
Imagine a war room of strategists working together to combat terror.
Cyber crime is such a threat Wi.
Wi point is joining forces with the experts and leaders needed to shift this work it.
It will not happen overnight, but Q2 2023, we'll be one of our markers for when the partnership's truly started coming together in.
In the months ahead, we will report back with incremental material developments and successes with that I will hand, the call over to Bob.
Thank you Jason Good afternoon, everyone I'm pleased to share the details of our second quarter 2023 financial results.
The second quarter, our revenue was $26 8 million, an increase of $3 7 million or 16% from the $23 1 million reported for the same period last year.
Revenues for the six months period ended June 32023 were $52 1 million, an increase of $6 6 million or 14% from the $45 5 million in the same period last year.
Now I will provide a further breakdown of our second quarter and six month revenues.
In the second quarter, our carrier services revenue was $14 2 million, an increase of $1 7 million from the $12 5 million in the same period in 2022.
For the six months ended June 32023, our carrier services revenue was $27 8 million an increase of $2 4 million from $25 4 million in the same period in 2022, the increase for both the three months and six months result is due to increased carrier activity.
We are seeing across our customer base.
In the second quarter, our managed services revenues increased marginally relative to the same period last year, a $6 9 million and $6 7 million respectively.
For the six months ended June 32023, our managed services revenue is $13 8 million, which is relatively constant from period to period in the second quarter billable services fees were $1 9 million an increase of 900000 for $1 million in the same period in 2022.
For the six months ended June 32023, billable services fees were $3 1 million, an increase of $1 million in the $2 1 million in the same period last year.
For both the three and six month periods. The increase in billable services fees was the result of more billable positions with a particular government customer and an increase implementation services and our soft ex subsidiary.
In the second quarter reselling and other services was $3 8 million an increase of 900000 from the $2 9 million in the same period last year.
For the six months ended June 32023, reselling and other services was $7 3 million an increase of approximately $3 3 million from the $4 million in the same period last year.
The increase for both periods was due to the resale of new capabilities for three federal customers.
We do want to highlight that reselling and other services are transactional in nature, and the amount and timing of revenue could vary significantly from quarter to quarter.
Gross profit for the three months period ended June 32023 was $3 9 million or 15% of revenues.
As compared to $3 3 million or 14% of revenues in 2022.
Gross profit for the six months period ended June 32023 was $7 7 million or 15% of revenues as compared to $7 2 million or 15% of revenues in 2022.
The more significant metric of gross profit percentage, excluding carrier services was 31, 2% in the second quarter of 2023, which is consistent with 31, 5% in the same period last year.
For the six month period ended June 32023, gross profit percentage, excluding carrier services was 32% compared to 36% in the same period last year.
The lower gross margin percentage, excluding carrier services is related to corresponding cost from the resale of the new capabilities provided the three government customers I previously mentioned and increased amortization expenses related to the capital investments and our delivery platforms that are reaching completion and now.
Now beginning to be amortized.
We note that our gross profit percentage will vary quarter to quarter due to our revenue mix.
In the second quarter General administrative expenses were $3 9 million or 15% of revenues compared to $3 8 million or 17% of revenues in the same period of 2022.
The change in general and administrative dollars was not significant however, general and administrative expenses are lower as a percentage of revenue.
Administrative expenses for the six months period ended June 32023, or $7 9 million or 15% of revenue as compared to $7 6 million or 17% of revenue in 2022.
We expect to see general administrative costs as a percentage of revenue is lower in the future.
For the second quarter of 2023, our net loss was 842000 compared to a net loss of $13 8 million in the same period last year.
Net loss for the six months period ended June 2023 was $1 8 million compared to a net loss of approximately $14 1 million in the same period last year.
The principal difference in the net loss for the three and six month periods in 2023 compared to the same periods. In 2022 was the noncash goodwill charge of $16 3 million that was taken in the second quarter of 2022 and to a lesser extent the increased amortization expenses previous.
We mentioned.
Moving to our balance sheet.
<unk> about where wide point stands from a liquidity perspective, as we have done an exceptional job managing our cash and because of our access to a $4 million receivables factoring facility.
That said, we ended the quarter with $7 $8 million in cash which was in part due to the accelerated timing of cash receipts ahead of some vendor payments on the last day of the quarter.
This completes my financial summary for a more detailed analysis of our financial results. Please reference our Form 10-Q, which was filed on August 14th.
So with that I will turn the call back over to Jen.
Thank you, Bob and Jason on brand with the prior quarters, we've been continuing to receive and review interesting M&A opportunities that could be incrementally beneficial to our existing operations.
There are no substantive updates for me to share with you at this time, but we'll be sure to keep you all apprised, if and when an opportunity crystallizes.
Okay.
As I mentioned at the outset of the call, though operations have been improving and heading in the right direction. There are certain variables that are outside of our control, which I described earlier and that can potentially impact their operations to that point, we are trending toward the bottom of our aforementioned adjusted EBITDA guidance.
And on target for revenues the reason behind this stems from us experiencing growth in our value added resell business, which explains for the higher revenue, but lower adjusted EBITDA.
Since it's a lower margin offerings. Nonetheless, we are still confident that we will be exiting the year on a cash flow positive run rate basis more specifically, we believe we will be improving cash flow year over year by approximately $3 5 million.
It is an exciting time at one point as the investments we have made into the business has begun to bear fruit with <unk>.
In a small sample set of that recently as Jason shared.
But the more compelling thing to note is.
What is in store for our organization.
As we shared in addition to increased client retention augment this scope of work with some of those clients fueled by sales and marketing tactics as discussed by Jason. We believe that we are approaching an inflection point in our growth story.
It is certainly an invigorating moment in our corporate history with that said, we are ready to take questions from our analysts and major shareholders.
Greater will you. Please open the call for questions.
Absolutely at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be.
Necessary to pick up your handset before pressing the star keys.
While we pull for questions I'd like to start with a couple of questions. The first regarding FEMA.
<unk> been tragic news coming out of Lea Hain out Hawaii and.
And questions about the FEMA budget in the news how does the current federal government budget discussions effect female the overall federal government budget and wide point.
Thank you operator, the news out of the Haynesville is tragic and we pray for the people of Hawaii. During this time.
On the federal government front. They are again embroiled in a budget discussion and seamless budget, which is part of the department of Homeland security is caught up in that process.
Good news is that current wide poised contract are all funded.
And a very little risk to our current revenue run rate. However.
Any new projects could be delayed are pushing revenue streams to the right potentially.
Thank you.
And the second question can you provide more color on your fed ramp status.
Sure Ken the current status is that we are awaiting the alcohol tobacco firearms and explosives or a T. S to provide an authorization to operate or Ato.
A T O is currently with the a T S Cio's office or final signature.
Once signed by the Cio's office It goes to the general services administration or rig.
For for final review and approval.
And federal authorization status.
<unk> spine overview, usually takes a few weeks to complete however, GSA has informed us that they have received record numbers of applications. This year.
And that the review process has lengthened a little bit.
That said, we believe that this process will be completed in Q4 of this year.
Thank you.
Once again, if you have a question or a comment please press star one on your Touchtone phone.
Once again Thats Star one if you have a question or a comment.
At this time. This concludes our question and answer session. If you have if your question was not taken please contact white points IR team at W. YY at Gateway IR Dot com.
I'd like to turn the call back over to Mr. Jin Kang for his closing remarks.
Thank you operator, we appreciate everyone, taking the time to join US today as the operator mentioned if there were any questions. We did not address today. Please contact our IR team.
Find their full contact information at the bottom of today's earnings release.
You again and have a great evening.
Thank you for joining us for wide second quarter 2023 conference call.
You may now disconnect.